Bank of Japan Policymakers Proceed Cautiously in Ending Ultra-Loose Monetary Policy
Summary of Opinions at March Meeting
Many Bank of Japan policymakers advocated for a gradual approach in phasing out ultra-loose monetary policies, citing concerns about the economy’s readiness for rapid interest rate hikes. The board was divided on whether the economy could withstand the transition away from negative interest rates.
One member emphasized the importance of maintaining a cautious stance even after ending negative rate policy, highlighting the need to communicate clearly that the changes were not indicative of a shift towards monetary tightening. Another member underscored the goal of achieving the bank’s price target through the proposed adjustments.
Transition Away from Unorthodox Policies
The BOJ’s historic decision to end negative interest rates marked a significant shift from its previous focus on reflating growth through massive monetary stimulus. The summary of opinions revealed a preference among policymakers to proceed slowly with future interest rate hikes, potentially keeping the Japanese yen under pressure.
While some members pointed to positive data supporting the move, such as notable wage increases by large corporations, others urged caution, emphasizing the need to monitor the impact on smaller firms and the broader economy.
Deliberate Approach to Policy Normalization
Despite the 7-2 vote in favor of ending ultra-loose policy, dissenting voices highlighted the importance of maintaining yield curve control and negative rates to support the economy. Even supporters of the transition stressed the need for a cautious and steady approach towards policy normalization.
The BOJ’s commitment to preventing abrupt spikes in borrowing costs was evident in its pledge to continue buying government bonds at a consistent rate and adjust purchases as needed to maintain stability in long-term yields.
Flexibility in Monetary Measures
One member suggested allowing more flexibility in long-term yields by adjusting the amount of bond purchases by specific increments. This approach aimed to strike a balance between supporting economic growth and managing inflation expectations.
The yen’s depreciation following the rate hike reflected market expectations of a gradual path to future rate increases by the BOJ, reinforcing the central bank’s commitment to a cautious and deliberate monetary policy strategy.
